Dow Jones futures were little changed late Wednesday, along with S&P 500 futures and Nasdaq futures. The stock market rally powered higher on Salesforce (CRM) earnings, but once again there are warning signs. Investors will now place their attention on Fed chief Jerome Powell, who is giving a major policy speech Thursday morning.
The S&P 500 and Nasdaq hit record highs Thursday with Salesforce stock surging and spurring a broad software advance, which included Adobe (ADBE) and Shopify (SHOP). Tesla and FANG stocks Facebook (FB) and Netflix (NFLX) were among the many notable winners.
But the Nasdaq, already extended on a long-term chart, is starting to flash short-term warning signs.
More Software Earnings
After the close, database software makers Splunk (SPLK), Elastic (ESTC) and Box (BOX) reported earnings. So did housewares retailer Williams-Sonoma (WSM). Chinese online entertainment firm Bilibili (BILI) is due to release results tonight.
Dollar stores Dollar General (DG) and Dollar Tree are due early Thursday.
Splunk stock fell slightly overnight on mixed results after surging 6.45% Wednesday. Elastic stock rose solidly on strong results and guidance, after stretching 8.3% higher on Wednesday. Box stock spiked on a beat-and-raise quarter, signaling a move toward a buy point. Williams-Sonoma stock fell hard despite easily beating views.
Splunk and Bilibili had closed in on buy zones, while Elastic moved out of range. Box has been consolidating, and Williams-Sonoma was slightly extended.
Dollar General stock and Dollar Tree (DLTR) rose Wednesday to the edge of buy zones.
Separately, Xpeng Motors (XPEV) is set to price its IPO Wednesday night. It’ll be the latest China electric-vehicle rival to Tesla (TSLA) going public in the U.S. Nio (NIO) extended Tuesday’s breakout, while newly public Li Auto (LI) vaulted above a buy point Wednesday. Tesla stock rose to a new high.
Tesla, Netflix and Adobe are on IBD Leaderboard. Facebook stock, Shopify and Netflix are on SwingTrader. Salesforce stock, Adobe and Dollar General are on IBD Long-Term Leaders. Netflix and Dollar General are on the IBD 50 list.
Dow Jones Futures Today
Dow Jones futures were flat vs. fair value, along with S&P 500 futures. Nasdaq 100 futures edged lower. Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
GOP lawmakers are reportedly planning on releasing a smaller coronavirus stimulus bill this week. The $500 billion proposal would include items that generally have bipartisan support, including expanded unemployment benefits and small-business aid.
Fed Chief Jerome Powell Speech
Fed chief Jerome Powell will deliver a key speech Thursday morning titled “Monetary Policy Framework Review.” The speech, at a virtual version of the Fed’s annual Jackson Hole symposium, will reveal the culmination of a yearlong policy review on how to spur inflation back to normal levels. Powell will likely back letting inflation run above 2%, rather than trying to keep price gains to 2%.
There’s speculation that Fed chief Powell could signal increased asset buys, which would likely be good news for stocks. But if Powell offers no hints on bold new policy action, stocks may react negatively.
In other economic news that could move Dow Jones futures, weekly jobless claims are due at 8:30 a.m. ET. Durable goods orders for July are also set for an 8:30 a.m. ET release.
Coronavirus cases worldwide are at 24.28 million. Covid-19 deaths have topped 827,000.
Coronavirus cases in the U.S. hit 5.99 million, with deaths above 183,000.
Moderna (MRNA) reported further positive data on its coronavirus vaccine. Its vaccine candidate stimulated an immune response among elderly patients, who are at the highest risk from Covid-19. It’s one of a handful of experimental Covid-19 vaccines now in late-stage trials.
Coronavirus Stock Market Rally Wednesday
U.S. Stock Market Today Overview
Last Update: 4:02 PM ET 8/26/2020
The coronavirus stock market rally had another powerful session for tech leaders.
Salesforce shot up 26% Wednesday, as the incoming Dow Jones stock delivered strong earnings and guidance. That lifted a slew of other software stocks, including DocuSign (DOCU) and fellow Long-Term Leaders Microsoft (MSFT) and Adobe stock. Upbeat economic data and the Moderna coronavirus news also helped boost stocks.
The Dow Jones Industrial Average climbed 0.3% in Wednesday’s stock market trading. The S&P 500 index rose 1% and the Nasdaq composite jumped 1.7%, both rising for a fifth straight session.
Aside from CRM stock, Facebook stock leapt 8.2%, continuing a strong run. Netflix rallied nearly 12%, rebounding from its 10-week line and clearing short-term resistance. Shopify stock spiked 5%, extending a 10-week line rebound to a new high. DJIA compnent Microsoft gained 2.2%, clearing a short consolidation to a new high. Amazon.com (AMZN) rose 2.9%, decisively moving above its flat base. Tesla stock leapt 6.4% and Adobe surged 9.1%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) exploded 5.4%, with CRM stock, Microsoft and Adobe all major components. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.6%.
Xpeng IPO Set To Price
Later tonight, Xpeng Motors (XPEV) is set to price its IPO. Xpeng Motors plans to offer 85 million American depositary shares. The target price range was $11-$13, but reportedly the Xpeng IPO will price at 15, which would raise $1.275 billion. The just-launched Xpeng P7 sedan is a Tesla Model 3 rival, on paper offering greater range for a lower price.
Xpeng will begin trading Thursday with the XPEV ticker. The Alibaba (BABA)-backed startup will join Nio and Li Auto as Chinese EV Tesla rivals trading in the U.S. Nio stock rose nearly 15% Wednesday after surging 19% Tuesday, racing through a buy zone. Li Auto, which came public at the end of July, erupted for a 28% gain to 23.25, clearing an IPO-base buy point of 20.
Stock Market Rally Yellow Flags
The stock market rally is still within its recent trend, though the Nasdaq is moving toward the upper end of its channel lines. Like a runner sprinting up a hill, the current market rally is rising at too steep an angle to be sustainable long term, so movement toward the high end is worth watching.
The also tech-heavy index is now 9.8% above its 50-day moving average. That figure is near levels preceding several recent pullbacks. Also, the Nasdaq is 5.2% above its 21-day moving average, the biggest gap in months. The big-cap Nasdaq 100 is 6.2% over its 21-day.
Meanwhile, the Nasdaq is increasingly extended from a long-term channel going back to 2010.
Can the stock market rally continue to power higher from here? Sure! After moving sideways in the latter half of July, the Nasdaq has risen sharply this month and has been accelerating in recent days.
Ready For A Market Pullback?
But the risks of a pullback are rising, with a growing chance that a retreat will be larger. Investors could use negative news on earnings, economic reports, coronavirus vaccine data or some geopolitical event as an excuse to take some profits.
Ideally, the stock market rally would move sideways, letting the 50-day line and long-term channel lines catch up without causing real damage to leading stocks.
A pullback to the 21-day moving average would be normal, but would likely mean sharp losses for many growth stocks. A gradual pullback to the 50-day line also would be normal, but would entail more significant losses in growth names. Investors can’t discount the possibility that the major indexes will fall quickly to or even below their 50-day averages.
Investors may want to be cautious about new buys at these levels, but for now there’s no reason to be overly cautious. Pay close attention to your holdings as well as the leading stocks and major indexes. Have a game plan and be ready to act.
Read The Big Picture every day to stay in sync with the market direction.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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